May 11, 2013

Small companies can't get credit

Banks don't want to make risky loans to businesses seen as posing a greater risk of default.

By STEVE MATTHEWS Bloomberg News

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"The regulatory scrutiny is a little more severe" for lending to startups and new companies, he said. "I may be questioned at the next examination" and a loan to such a borrower could be classified as a problem by regulators "even though I may not consider it" weak.

While smaller banks are easing credit somewhat in response to an economy on the mend, "the improvements in the sector are certainly lagging the broader recovery," economist Price said.

That would leave them behind the largest banks, which relaxed lending standards during the previous quarter, according to a Fed survey of loan officers at 68 domestic banks and 21 U.S. branches and agencies of foreign banks conducted from April 2 to April 16.

While the Fed ordered the largest U.S. banks to raise $74.6 billion in capital in 2009, many small banks don't have the ability to raise new capital and so therefore shrink their asset base by making fewer loans, she said. Community bankers say lending is also held back by weak demand in markets where the economy is still struggling, as well as fewer qualified borrowers.

"Some of the borrowers have dents coming off the recession," with late payments or defaults, said Charles Crawford, president of the Atlanta-based Private Bank of Buckhead, which has been increasing lending. With a "tepid recovery" nationally, "a lot of good borrowers are paying loans back early," he said.

"A bank like ours wants to lend more," he said.


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